Why AT&T Is Betting On The Addressable TV Advertising Market

AT&T (NYSE:T) will partner with satellite TV rival Dish Network and global advertising giant WPP to acquire Invidi Technologies, a company that develops addressable video advertising software and platforms that allow companies to target TV viewers based on various attributes. While the financial terms of the deal – which is expected to close early next year – were not disclosed, we believe that Invidi’s assets could be of strategic importance to AT&T given its growing exposure to the advertising space following its high-profile deals in the TV and media space.

We have a $44 price estimate for AT&T, which is slightly ahead of the current market price.

See our complete analysis for AT&T here

Addressable Advertising Market Explained 

Traditional forms of advertising have been facing pressure, as marketers are increasingly shifting ad dollars away from traditional media towards web and mobile advertising, which offer better engagement as ads are targeted based on pools of information such as search, online transactions and browsing history. For instance, U.S. digital ad spending is projected to surpass TV this year according to eMarketer (~$72 billion versus ~$71 billion). However, addressable advertising could help TV companies soften the blow, as it combines the visual impact of TV advertising, with improved targeting capabilities that are more typical of online advertising. The technology essentially allows TV companies to play different advertisements at different households while they are watching the same program, allowing marketers to target specific groups of customers based on demographic and other attributes.

While the addressable TV advertising market is projected to stand at just $890 million this year – accounting for just 1.3% of the U.S. television advertising spending –  it is expected to more than double over the next two years, accounting for close to 3% of the TV ad market. ^[1] The number of addressable capable households in the U.S. stands at 49.8 million, comprising of about 50% of pay TV subscribers.

Why Addressable Is Important To AT&T

AT&T’s interest in the advertising space has been growing, since it became the largest pay TV provider in the United States following its 2015 acquisition of DirecTV. The carrier notes that its AdWorks unit has annualized revenues of more than $1 billion, and there could be significant scope for growth as it further improves its addressable advertising capabilities. AT&T has around 25 million pay TV subscribers across its DirecTV and U-Verse brands, with the capability to sell addressable ads to about 12.4 million of these subscribers. AT&T could also eventually leverage the extensive consumer data sets from its wireless operations (130 million+ subscribers) to improve its targeting, while coordinating ad capabilities across different screens, as it launches its new DirecTV Now streaming TV offering.

In late October, AT&T announced that it would be acquiring media behemoth Time Warner, and it is possible that improved advertising models could be a part of the carrier’s argument as it pushes for regulatory clearance. For instance, in its press release announcing the deal, AT&T highlighted that the deal would be good for consumers, as it could use ad-supported models that offer better targeting, shifting more of the cost of content creation from customers to advertisers.

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1. US Addressable TV Ad Spending to Double… Again, eMarketer, June 2016 [↩]